“This Is Not Your Happy Place”

“This Is Not Your Happy Place”

What did I say less than 12 hours ago as the USD was plunging against its global peers? This:

Confused? That is, is your reading of the Dec. minutes inconclusive and thus not enough to give you any kind of conviction one way or another? You’re not alone.

My point: how can we attribute a sudden bout of weakness in the greenback to a dovish reading of the minutes?

That made no sense to me.

In fact, the market’s read on the minutes made so little sense that I didn’t even bother commenting after the release on Wednesday. Right after 2 EST, you saw yields fall even as the minutes looked – to me anyway – more hawkish than dovish. So when I saw headlines attributing the dollar’s overnight plunge to the Fed’s indication that rate hikes would be “gradual”, I immediately called bullshit.

Well this morning, the incomparable Richard Breslow is out with his take and as usual, his analysis is entirely compatible with my own.


From Bloomberg’s Richard Breslow (not the highlights):

I’ve got news for you. The world is a complicated place and getting more so, not less. This is not your happy, some would say mind-numbing, environment where the only thing that ultimately mattered was blind faith in the global commitment of central banks to “do whatever it takes”. It will not serve investors well to fall back on analysis by reductio ad simplicate.

  • Did markets make their moves since the minutes because the Fed was dovish? That’s a stretch. I suppose it is possible to sift through and find the parts that might support such a case. But it would be a selective and incomplete reading of the words. Especially in light of Chair Yellen’s post- decision press conference
  • The dollar was down in Asia today. Just think for a minute. Might it have had something to do with with the squeezes dramatically strengthening both onshore and offshore yuan rather than a belated understanding that the Fed might still take data into account going forward?
  • The offshore yuan is up 2% over two days. That’s a rarity, to say the least. But not that surprising as overnight funding rates are soaring. This squeeze feels more like a squash to all those traders who thought being long dollars against the yuan was a no-brainer trade to have on for the new year
  • How many people cut risk at year-end but figured there was no reason to get out of those juicy 12-month NDFs? That was the safe trade. But believe me, they are now finding stops littered all over the place. Meanwhile, sending every Asian currency rebounding versus the dollar in sympathy and spooking regional bond markets but good
  • Januarys aren’t like any other month. Everyone starts at zero again and losses feel larger than at other times. It’s only the 5th, but people who only jumped back in Tuesday are already mourning the loss of their high water mark. This is how panics happen. It’s why we have volatility. But you’ll only understand what’s going on if you look beyond the U.S. borders
  • This isn’t a Fed story. If the world looks different today then yesterday, it’s not because of the minutes, but rather a lack of perspective



One thought on ““This Is Not Your Happy Place”

  1. In a former life as a day trader, the open-source media explanations for what drove daily market moves was always entertaining.

    Now, with the waters so muddied by central banks over the last decade the true market-driver-of-the day gets harder and harder for even in the high info crowd to see.

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